Characteristics of Insurable Risks

It is necessary to have some idea of what can and cannot be insured and we need to note the characteristics or nature of insurable risks. There is one caveat, which should be made at this point: it is not possible or indeed wise to be dogmatic about these classifications of insurable risk. The world of business is not a static environment. It changes to adjust to circumstances as they are perceived, and what may be an uninsurable risk today could very well be insurable tomorrow. Basically there are seven characteristics of insurable risks as follows:

Fortuitous

The occurrence of the event must be entirely fortuitous as far as the insured is concerned (the ‘insured’ is the person, company or organisation insured by an insurance company). It is not possible to insure against an event which will definitely occur, since it involves no uncertainty of loss and therefore no transfer of risk would be taking place. This would rule out inevitable events such as damage caused by wear and tear and depreciation. Any damage or loss inflicted on purpose by the insured would also be ruled out. Purposeful acts by other people would not automatically be ruled out, provided that they were entirely fortuitous as far as the insured was concerned.

Financial value

The risk to be insured must result in a loss which is capable of being measured in financial terms.